IMPORTANT UPDATE: Holiday Pay and Overtime

Nov 6, 2014   //   by Ralph   //   Latest News

The 4th November 2014 saw the ruling in the landmark case of Bear Scotland v Fulton which means a significant change to the way the majority of employers are interpreting holiday pay and entitlement.

The EU Working Time Directive states that payment for holidays shall be at the ‘worker’s normal rate of pay’ and that holiday pay is ‘therefore calculated on the basis of the worker’s normal hours of work’.  ‘Normal’ has been interpreted by the Tribunal as any additional remuneration that the employee could normally qualify for by working additional hours or achieving a certain target, and includes taxable payments made for time travelling to work (ie. a travel allowance).  Therefore where an employee works regular additional hours (such as overtime) or is paid regular additional payments (such as commission) these hours/payments should be included in the holiday calculation.  This is irrespective of whether any additional hours or work are voluntary.

As a result of this case, if you have employees who are paid regular overtime or additional payments and they have been given paid leave for their contracted hours only, they may consider a claim for underpayment of holiday pay.  The ruling by the Tribunal is that they can appeal if they do so within 3 months of an underpayment and they can do so for all earlier underpayments within 3 months of each other.

It is important at this point to note that the Tribunal has given permission for this judgement to be appealed to the Court of Appeal and any final decision (if an appeal is lodged) may still be some time away.

With this in mind, we recommend that you change your holiday calculation process immediately to reflect the ruling.  As the ruling only relates to the EU Working Time Directive element of the UK Working Time Regulations it only applies to the first 4 weeks holiday (pro rata), as the further 1.6 weeks (pro rata), usually given as bank holidays, is an additional annual leave requirement for the UK only.

EXAMPLE: If Employee A works 40 hours a week with regular overtime of 10 hours a week, his yearly entitlement will be as follows:

Employee Works: 40 hours + 10 hours a week

Holiday entitlement: 4 weeks @ 50 hours a week = 4 x 40 hours @ normal rate; 4 x 10 hours @overtime rate

Plus 1.6 weeks @ 40 hours a week only

Total hours holiday entitlement for the year = 224 hours @ normal rate and 40 hours @ overtime rate.

If your employee works different hours each week, the holiday should be calculated on an average of the last 12 weeks paid.

More information about the ruling can be found at www.acas.org.uk or by calling the ACAS helpline 0300 123 1100 or for advice specific to your business contact us on 01978 264846.

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